Chinese tech stocks have soared past earnings expectations, with investors hoping to see companies perform better amid an economic recovery before buying more shares, according to analysts who previously questioned the sector’s investibility.
“We still see about 20% to 25% upside for shares” given improving cost structures and increased competition, said Alex Yao, co-head of TMT research in Asia at JPMorgan Chase & Co. In an April report, Yao said he thought the sector had bottomed out.
“From a top-down perspective, once the macro economy recovers, e-commerce companies will benefit from a cyclical recovery in consumption,” Yao said in an interview last week. “The theme this time is China’s macroeconomic stabilization.”
Investors are closely monitoring data from China, including consumption growth, inflation and property market trends, for clues about the strength of the country’s economic recovery.
He said “macro indicators showing signs of stabilizing” have been the main driver of the sector’s gains so far this year and will be a key factor in how shares move going forward.
“If this industry can grow revenue at 10 percent or 20 percent over the long term, I think people should reward companies for the sustainability of that revenue,” Yao said.
